Comparable License

A comparable license is a prior agreement granting rights to the same or similar technology that serves as the most direct evidence of what a willing licensor and willing licensee would have agreed to in the hypothetical negotiation: WHY COMPARABLE LICENSES ARE THE BEST EVIDENCE: the Georgia-Pacific framework directs courts to consider 'royalties received by the patentee for licensing the patent' and 'rates paid by the licensee for the use of patents comparable to the patent in suit'; these are the first two Georgia-Pacific factors and courts consistently treat them as the most probative; a real market transaction, made at arm's length, between knowledgeable parties, reflects actual market valuation; it avoids the speculation inherent in income-based and cost-based royalty calculation methods; WHAT MAKES A LICENSE COMPARABLE: (a) SAME PATENTS: prior licenses of the exact same patents at issue are directly comparable; (b) SIMILAR TECHNOLOGY: licenses for patents in the same technical field covering similar functionality; (c) SIMILAR SCOPE: licenses must be in the same field of use and territory; an exclusive license is not directly comparable to a non-exclusive license without adjustment; (d) SIMILAR TIMEFRAME: licenses negotiated at approximately the same time as the hypothetical negotiation date; older licenses may reflect different market conditions; (e) VOLUNTARY NEGOTIATION: litigation settlements are treated differently — the settlement royalty often reflects litigation risk rather than pure technology value; THE ADMISSIBILITY STANDARD: Federal Circuit: comparable licenses are admissible as evidence if they are sufficiently comparable; if a proffered license is too dissimilar, the court may exclude it or require substantial adjustments; expert witnesses typically opine on comparability and perform adjustments.

Federal Circuit decisions have established standards for comparable license analysis: THE COMPARABILITY TEST: a comparable license analysis requires identifying the similarities and differences between the prior license and the hypothetical negotiation; then adjusting for the differences to arrive at a royalty rate for the patents in suit; RESQNET.COM v. LANSA (Fed. Cir. 2010): the court must not rely on licenses based on different technologies or different circumstances without performing a proper comparability analysis; simply because a license exists does not mean it is comparable; LUCENT v. GATEWAY (Fed. Cir. 2009): $1.53B jury verdict overturned because the comparable licenses cited did not involve the same type of patent, same scope of rights, or similar context; the damages award must be supported by substantial evidence of comparability; VIRNETX v. CISCO (Fed. Cir. 2014): licenses that include a large bundle of patents (portfolio licenses) are not comparable to a license for a single patent without adjustment; the portfolio license must be unpacked to isolate the value of the specific patent; KEY ADJUSTMENTS COURTS REQUIRE: (a) SCOPE ADJUSTMENTS: exclusive vs. non-exclusive; field of use narrower or broader; territory differences; (b) TIME ADJUSTMENTS: prior license made at a different point in the technology life cycle; (c) PATENT VALIDITY: prior license may have been made under more uncertain validity circumstances; (d) SETTLEMENT VS. ARMS-LENGTH: settlement licenses reflect litigation risk premium; must be discounted to reflect technology value alone; ANALYTICAL FRAMEWORK: start with the comparable license rate; add/subtract adjustments for identified differences; arrive at the adjusted comparable rate; compare to other valuation methods as a cross-check.

Courts and experts distinguish between settlement licenses and arm's-length voluntary licenses because they reflect different economic motivations: SETTLEMENT LICENSES: made to end or avoid litigation; the payment reflects: (a) the probability of plaintiff winning (patent validity × infringement probability); (b) the expected damages if plaintiff wins; (c) the cost of continuing litigation; (d) other non-patent considerations (business relationship, cross-license, etc.); settlement licenses often UNDERSTATE the true patent value because: the defendant pays to avoid litigation risk and cost, not because the patent is worth that much; a defendant may pay even for a weak patent if litigation defense costs more than settlement; ARMS-LENGTH LICENSES: made when neither party is in litigation; reflects the true market value of the licensed technology; the licensee is paying for the right to use the technology because it is commercially valuable; the payment is not inflated or deflated by litigation dynamics; DISCOUNTING SETTLEMENT LICENSES: courts can use settlement licenses as comparable evidence, but must adjust for the settlement context; ResQNet.com v. Lansa: settlement licenses should receive less weight than arm's-length licenses; the settlement amount should be analyzed for what portion reflects patent value vs. litigation avoidance; STANDARD FOR EXCLUSION: if a settlement license is so contaminated by litigation considerations that it cannot reliably indicate patent value, the court may exclude it; but courts rarely exclude entirely — they discount; LICENSEE'S PERSPECTIVE: when seeking a comparable license to establish a low royalty rate, the licensee prefers settlement licenses (often lower rates); when the licensor seeks comparable licenses, it prefers arm's-length licenses at higher rates; this creates a strategic asymmetry in discovery.

Obtaining comparable license evidence is a central discovery objective in patent infringement damages cases: DISCOVERY FROM THE LICENSOR: the patent owner must produce all prior licenses for the patents in suit (directly comparable); the patent owner should also produce prior licenses for related patents (continuation/divisional family); licenses for similar technology; the licensor's licensing policies and rate schedules; DISCOVERY FROM THE LICENSEE: the defendant/licensee must produce agreements where it has received licenses for similar technology; these show what the licensee has paid historically and establish the licensee's reservation price; THIRD-PARTY LICENSES: other licensees of the same patent may hold comparable licenses; discovering these licenses may require third-party subpoenas; the licensor typically opposes disclosure; courts often allow limited discovery from third parties who hold licenses; STANDARD LICENSE DATABASES: patent licensing databases (some technology areas have publicly reported rates); FRAND rate determinations in TCL v. Ericsson, Unwired Planet are public; pharmaceutical license data from SEC filings (listed companies must disclose material licensing agreements); ITC proceedings: licenses entered in evidence in ITC investigations are public; PROTECTING CONFIDENTIALITY: most licenses are highly confidential business information; protective orders in litigation allow disclosure only to attorneys and experts; the actual license documents are not typically made public in trial; EXPERT COMPARABILITY ANALYSIS: both parties retain damages experts; experts identify comparable licenses and perform the adjustments; the opposing expert then challenges comparability; the jury evaluates credibility of competing comparable license analyses.

FRAND rate determinations and standards-essential patent (SEP) licenses create unique comparable license issues: FRAND AS A CEILING AND FLOOR: for SEPs, FRAND rates represent the obligation of patent holders; a FRAND rate is fair, reasonable, and non-discriminatory; FRAND-committed SEP licenses are directly comparable for other SEP licenses in the same standard; TCL v. ERICSSON (C.D. Cal. 2017): court-determined FRAND rate using top-down methodology; aggregate royalty for all SEPs × Ericsson's proportionate share; this determination is a publicly available comparable for other 5G/4G SEP license negotiations; UNWIRED PLANET v. HUAWEI (UK SC 2020): global FRAND rates determined by UK courts; public record evidence of comparable rates for 4G SEP portfolios; PATENT POOL LICENSES AS COMPARABLES: MPEG LA pool rates for H.264 (AVC) are published and widely available; Avanci rates for cellular IoT are published; pool rates reflect the aggregate value of all pooled patents, so comparison to an individual patent requires adjustment; POOL RATE AS FLOOR: a licensee who can obtain a license to the pool (including the plaintiff's patents) at the pool rate argues that the pool rate is a ceiling for any individual patent in the pool; COMPARABILITY CHALLENGES FOR FRAND: SEP licenses involve large portfolios (not individual patents); the royalty base may be different (per-device vs. percentage of device price); FRAND commitment context is different from voluntary licensing; adjustments required for: number of patents in license; aggregate portfolio value vs. individual patent; voluntary vs. FRAND-obligated context.